Question

In: Finance

Company Q’s current return on equity (ROE) is 14%. It pays out one-half of earnings as...

Company Q’s current return on equity (ROE) is 14%. It pays out one-half of earnings as cash dividends (payout ratio=0.5). The current book value per share is $50. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stays constant for the next four years. After that, competition forces ROE down to 11.5% and the payout ratio increases to 0.8. The cost of capital is 11.5%.

  1. What are Q’s EPS and dividends next year? How will EPS and dividends grow in years 2, 3, 4, 5, and subsequent years?
  2. What is Q’s stock worth per share? How does that value depend on the payout ratio and growth rate after year 4?

Solutions

Expert Solution

Please find attached pics for answer, please like if the answer is correct

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

Company Q’s current return on equity (ROE) is 14%. It pays out one half of earnings...
Company Q’s current return on equity (ROE) is 14%. It pays out one half of earnings as cash dividends (payout ratio = 0.5). Current book value per share is $50. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.5% and the payout ratio increases to 0.8. The cost of capital is 11.5%. a. What are Q’s EPS...
20. Company Q’s ROE (return on equity) is 14%. It pays out one-half of its earnings...
20. Company Q’s ROE (return on equity) is 14%. It pays out one-half of its earnings as cash dividends (payout ratio = 50%). Current book value per share is $50. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next 4 years. After that, competition forces ROE down to 11.5% and the payout increases to 0.8. The cost of capital is 11.5%. a. What are Q’s EPS and...
Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of...
Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of its earnings as cash dividends. (payout ratio = .45). Current book value per share is $58. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.0% and the payout ratio increases to .80. The cost of capital is 11.0%. a. What are...
Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of...
Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of its earnings as cash dividends. (payout ratio = .45). Current book value per share is $58. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.0% and the payout ratio increases to .80. The cost of capital is 11.0%. a. What are...
Company X's current return on equity (ROE) is 17.06%. It pays out one-quarter of earnings as...
Company X's current return on equity (ROE) is 17.06%. It pays out one-quarter of earnings as cash dividends, i.e. its payout ratio is 29.1%. Current book value per share is $38.71. The company has 5.68 million shares outstanding. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces the ROE to 11.02% and the company changes the payout ratio to 71.52%. The company does not plan to issue or retire shares. The...
A company’s current ROE is 12%. It pays out one-half of its earnings as cash dividends....
A company’s current ROE is 12%. It pays out one-half of its earnings as cash dividends. Current book value is $20 and all reinvestments in the business will also produce a 12% return. If the cost of capital is 8%, what is the appropriate current share price? What is the expected share price after five years? If the cost of capital is 15%, what is the appropriate current share price? What is the expected share price after five years?
Define and differentiate between return on total assets (ROA), return on equity (ROE), and earnings per...
Define and differentiate between return on total assets (ROA), return on equity (ROE), and earnings per share (EPS). Which measure is probably of greatest interest to owners? Why?
What is the current year's return on equity (ROE)? ................................................................. Prior / Current Accounts payable ???...
What is the current year's return on equity (ROE)? ................................................................. Prior / Current Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750 Additional paid in capital 500,000 541,650 Cash 17,500 47,500 Common Stock 94,000 105,000 COGS 328,500 429,565.00 Current portion long-term debt 33,750 35,000 Depreciation expense 54,000 55,706.00 Interest expense 40,500 42,701.00 Inventories 279,000 288,000 Long-term debt 338,332.00 400,482.00 Net fixed assets 946,535 999,000 Notes payable 148,500 162,000 Operating expenses (excl. depr.) 126,000 161,224.00 Retained earnings 306,000 342,000...
Think about how you would present return on equity (ROE) and earnings per share (EPS) to...
Think about how you would present return on equity (ROE) and earnings per share (EPS) to a group of investors or senior management. Explain the use of ROE and EPS in evaluating the value of a company. Include how to calculate ROE and EPS. Why is understanding ROE and EPS important to a company’s value? Share an example of a company whose ROE and EPS you calculated. What do these results say about the company?
Return on Equity (ROE) is one profitability ratio that is used to determine financial performance. Can...
Return on Equity (ROE) is one profitability ratio that is used to determine financial performance. Can you see any limitations with using ROE to determine the health of a startup business or business that is 1-2 years old?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT